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Car loans are one of those debts that look sensible on paper (I need transportation!), but usually becomes an unnecessary burden. I learned this the hard way, but I'm glad I got the lesson.
Upgrading My Ride (and Paying Dearly for It)
From around 18 to 22 I had paid cash for my cars. They were definitely beaters, but they were fine for a college student getting around the city.
After awhile I felt like I deserved a newer car since I worked so hard and people were telling me how cheap it was to get one.
I looked around and found a used car for a good price, but it was still too much for my income at the time.
The dealer had an easy solution: get a co-signer for my car loan. So my mom agreed to co-sign (I love her, but I now know this was a very bad idea) and I got the car I wanted.
Bad Used Car Loan
Fast forward a few months later and I got into a wreck and my car was totaled by the insurance company. I got a check from the insurance company for a little more than $2,000 (the difference between my car loan and its worth).
I should’ve gotten a used car with that money and it would've been good.
Instead, I let ego and peer pressure to cloud my judgment again and I got another car loan, again with a co-signer. (When I say loaning money to family can be a bad thing, just understand I have been on both sides of the table.)
The payments were lower than my first car loan, but the interest rate was high (almost 14% ).
The $10,000 car that I bought would've costed me $15,962 if I paid it according to the car loan schedule. We paid it off early, but I still paid too much in interest and fees.
Didn't Count the Total Cost of the Car
Instead of focusing on the monthly payments, I should looked at the big picture. Besides the car loan, there were some additional expenses with the car. What didn't I take into consideration? Quite a bit in my hasty for an upgrade on my transportation.
What didn't I take into consideration? Quite a bit in my hasty for an upgrade on my transportation.
- DMV Fees
- Property Taxes
- Insurance Costs
These were extra expenses coming out of my pocket that further depleted my finances at the time.
Happy to Be Car Debt Free
Having no car loan is a fantastic and while I do time to time want another car, I understand that getting a car loan is not the best solution.
If you're looking to dump your car loan, find out how we paid off ours off.